Netflix Has a Million-Dollar Advantage

Anything you can do, I can do better. Just give me three years and a million bucks.

So you think Netflix(NASDAQ:NFLX) will become irrelevant in the all-digital movie watching era? Think again.

I am supremely confident that Netflix holds unique advantages over the competition that will keep the company at the forefront of any new movie rental market. When the DVD joins 8-track players and 5.25-inch floppy drives on the scrap heap of storage format history, Netflix will still be a digital movie leader.

So why do I believe in Netflix even as major rivals like Blockbuster(NYSE:BBI) and Amazon.com(NASDAQ:AMZN) are scaling up their own solutions for streaming or downloading digital feature-length movies? It's because the media giants of the future will be the ones that know how to guide me to the content I want to see. And Netflix knows more about entertainment tastes than anybody else.

The Netflix Prize competition is evidence of that fact, and also shows how seriously Netflix takes the whole movie recommendation issue. The competition kicked off nearly three years ago, dangling a $1 million prize in front of software developers and data-mining experts the world over. All you had to do to get that fat cash was to outdo the company's own recommendation system by a measly 10%.

Over 41,600 attempts later from 4,670 different teams in 184 countries, the prize may have been claimed. Once Netflix verifies the efficacy of the submission from team BellKor's Pragmatic Chaos and gives everyone else 30 days to beat their 10.05% improvement over the Netflix Cinematch system baseline, it's all over but the crying. The team includes senior research engineers from AT&T(NYSE:T) and Yahoo!(NYSE:YHOO).

Think about that for a moment. The winning team is actually an amalgamation of several of the challenge's previous leaders. There was a serious monetary carrot leading them on. And it still took three years to better the company's own system up by a modest 10%.

It will take a lot more than $1 million of in-house research for Blockbuster and company to become a more valuable movie-finding resource for curious consumers. TiVo(NASDAQ:TIVO)might have a shot at it after collecting thumbs-up ratings worldwide for a solid decade. Amazon does have a five-star ratings system, but I don't see the massive volume of inputs you get at Netflix and TiVo.

A new entertainment age is dawning. But Netflix will lead the new pack, too.